Republican leaders say there are no plans to extend payroll tax holiday

House Republicans have no plans to extend a payroll tax holiday scheduled to expire in 2012, according to several leading GOP members.

House liberals have warned that conservatives next year might push to extend the one-year payroll tax cut that was included in the White House-GOP tax package, leaving Social Security to compete with other programs for funding — and threatening seniors' benefits over time.

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But several top Republicans maintain they're not interested in that strategy at all.

Rep. Jeb Hensarling (R-Texas), who will head the House Republican Conference in the next Congress, said he didn't support the payroll tax holiday to begin with and won't support an extension. He noted that it was Democrats who pushed to include the payroll provision in the tax package.

"My understanding is that they brought that to the table as a one-time rebate," Hensarling said. "We are very sensitive to not hastening the bankruptcy of Social Security and Medicare. So how the debate looks a year from now, I don't know. But again, it's the Democrats who brought that to the table, and I thought it was very problematic to hasten the bankruptcy of a program that's not fiscally sound."

Rep. Kevin Brady (R) agreed. The Texas conservative was quick to note that the GOP's legislative plans next year are still very much up in the air. But his "gut feeling" is that Republicans will allow the payroll tax cut to expire as planned — a strategy he supports.

"We can't allow what occurred to be the precedent," Brady said.

At issue is a provision — enacted as part of the tax deal hammered out between the White House and Senate Republicans — cutting workers' payroll taxes from 6.2 percent to 4.2 percent through 2011. While the cut is only in the amount of two percentage points, it represents a real payroll tax reduction of 32 percent. For instance, a worker currently earning $100,000 will pay $6,200 in payroll taxes in 2010, and $4,200 in 2011.

The Congressional Budget Office estimates the cut will reduce federal revenues by $112 billion over the next two years. Because the tax package is not offset by changes elsewhere in the budget, the government will have to borrow to fill that hole in the Social Security trust fund.

The tax holiday is scheduled to expire at the start of 2012. But critics contend there will be little congressional appetite to return the tax to 6.2 percent — a 48 percent hike — in a presidential election year. They worry that anti-tax conservatives will spin that move as a tax hike amid a jobs crisis, much like they did this year in successfully extending Bush-era tax cuts that were initially scheduled to expire Dec. 31.

“Although the payroll tax cut is written as a one-year cut, there is a grave danger that it will not end up being a single-year reduction, but will be transformed into a permanent change in Social Security’s financing," Max Richtman, executive vice president of the National Committee to Preserve Social Security and Medicare, said last week during a press conference in the Capitol.

"The fact that it is included in a piece of legislation that is providing yet another extension of almost $1 trillion in tax cuts that were also intended to be temporary should give pause to anyone who believes it will be easy to let this cut lapse at the end of 2011."

A number of liberal Democrats have echoed those concerns. Behind Rep. Lloyd Doggett (D-Texas), they fought unsuccessfully to eliminate the payroll tax provision from the final package.

Doggett said he anticipates "big problems" for Social Security as a result of the payroll tax provision.

"Social Security will be at risk," Doggett said. "Most people don't know the implications of what's happened here."

The Texas Democrat said he would focus next year on publicizing the threat to the Social Security trust fund if the payroll tax holiday is extended. "We have our work cut out for us," he said.

Even some Republican critics of the payroll tax holiday concede there will be pressure on GOP leaders next year to extend the cut. Rep. Jeff Flake (R-Ariz.), a fiscal hawk who also opposed the payroll tax holiday, noted that the "Republican orthodoxy" is to support tax cuts across the board.

"If you raise a tax, no matter how temporary the cut, it's a tax hike," Flake said, explaining the thinking of some conservatives. Yet in the case of the payroll tax, he added, extending the cut will cause more harm than good.

"You're draining the trust fund, you're hastening the insolvency of Social Security," Flake said. "It's a bad deal."

Some top Democrats appear less concerned that any push to extend the tax cut would be successful. Rep. Barney Frank (D-Mass.) said the Democrats' message in favor of allowing the tax holiday to expire would be simple: "That it's necessary to save Social Security."

Asked if Democrats will be successful capping the tax holiday at one year, Frank responded with one word: "Yes."